Saving a deposit is just one of the many hoops that first home buyers need to jump through when buying a first home. With recent changes to lending regulations, requiring borrowers provide more detail and evidence around income and expenses when applying for a home loan, it’s more important than ever to ensure your personal finances are in good order. So to help you get started, here are our tips for preparing your finances to buy a first home.
Calculate your income
Your income is understandably one of the most important factors that lenders will consider when assessing your home loan application. Here are some of the types of income that lenders will consider and the supporting documents you’ll be required to provide:
- Salary or wages – will need to be verified using 3 months of pay slips and bank statements.
- Commission, bonuses or overtime – provide at least 2 years of income summary confirming any commission, bonuses or overtime pay that you receive on a consistent basis.
- Business income if you are self-employed – at least 2 years of financial statements prepared by an accountant.
- Contract income – provide your contractual agreement showing the terms of your contract and the income you will earn.
- Rental income – a rental appraisal from a real estate agent confirming the rental income the property will generate if you plan to rent it out.
- Boarder income – a signed letter from a boarder confirming their intent to stay in your home and the weekly rent agreed on.
Track your expenses
Regularly tracking your spending will give you an accurate picture of where your money is going, and help you decide where you’d like it to go instead. Here are some tips for tracking expenses:
- Keep receipts of all transactions and match them up against your bank statement. Often a tangible receipt is more impactful, giving you a big picture view of just how much you’re spending.
- Use a budgeting app – some apps can be linked to your bank account to track spending, and let you set budgets for your expenses, a good way to ensure you don’t overspend.
- Start grouping your expenses into essential expenses – such as rent, utilities and debt repayments – and non-essential expenses. Then identify where you could cut down – are there areas where you can cut back to save more?
- Pay down your debt – often this is the biggest obstacle preventing borrowers from moving forward with their home ownership dreams. Create a list of your debt and interest charges, and decide on a strategy for paying down each of these.
- Stick to your budget – this is your financial plan that sets out how you will allocate your money in order to reach your financial goals.
Work out how much you can afford
Knowing how much you can afford – and more importantly, how much a lender is prepared to lend you – will help you narrow down your property search and focus on properties you can realistically afford to buy.
Your borrowing power will be calculated using your:
- Income, savings and assets
- Debt and financial commitments
- Credit history
- Family size
- Employment history
- Residency status
Use an online calculator to get an estimate of your borrowing power, then get in touch with a mortgage adviser to go into more detail and get advice on buying a first home.
Get advice from a mortgage adviser
Regardless of what your financial situation looks like right now, it’s worthwhile talking to a Mortgage Express branded mortgage adviser about buying a first home. They can advise on lending requirements and supporting documents to ensure your first home mortgage application has the best chance of success.